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CIVISTA BANCSHARES, INC. (CIVB)·Q1 2024 Earnings Summary

Executive Summary

  • EPS $0.41 and net income $6.36M declined sharply YoY (EPS $0.82) and sequentially (Q4’23: $0.62) as noninterest income fell $2.6M YoY and net interest margin compressed to 3.22% on deposit mix shifts into higher-cost products .
  • Net interest margin fell 22 bps QoQ to 3.22% and 77 bps YoY; total funding cost rose to 2.54% and cost of deposits to 2.14%, pressuring profitability despite higher asset yields .
  • Management is targeting lower-cost funding: Ohio Homebuyers Plus deposits (up to $100M at ~0.86%) and on-balance-sheeting ~$75M of wealth-management cash by Q3; $151M of brokered CDs repriced in March with further $200M due in November to lower funding costs over time .
  • 2024 outlook: mid-single-digit loan growth maintained; expense run-rate ~$28.4–$28.7M per quarter after April merit increases; capital focus on rebuilding TCE to 7–7.5% (6.28% in Q1) while balancing buybacks/dividends; $13.5M repurchase authorization renewed in April .
  • Credit stable but provisioning higher (ACL/loans 1.34% vs 1.30% at 12/31/23) due to specific hospitality and cellular tower credits; NPA ratio at 0.41% and coverage robust (ACL/NPL 247%) .

What Went Well and What Went Wrong

  • What Went Well

    • Loan and lease balances grew 1.3% QoQ (+$36.4M), led by non-owner-occupied CRE, residential RE, and construction; pipelines healthy with most new commercial originations at ~7.9% yields .
    • Concrete funding initiatives: Ohio Homebuyers Plus (state deposits up to $100M at ~0.86% rate) and plan to bring ~$75M of wealth management cash on balance sheet by Q3 to reduce funding costs .
    • Capital/coverage metrics remain solid: TCE 6.28% (up YoY), ACL/NPL 247%, NPA/Assets 0.41%; dividend maintained at $0.16 (~4.16% yield at 3/29 close) .

  • What Went Wrong

    • Material NIM compression (3.22%) and elevated funding costs (2.54%) as deposit mix migrated to higher-cost money markets and time deposits; brokered and FHLB usage elevated (ST FHLB $368.5M) .
    • Noninterest income fell $2.6M YoY (-23.2%) after exiting tax refund business (-$1.9M YoY) and lapping a $1.5M one-time debit brand bonus; overdraft policy changes reduced service charges by $375K .
    • Provision rose (to $2.0M) on updated collateral/CECL for specific hospitality and cellular tower credits; efficiency ratio deteriorated to 73.8% (vs 64.1% in Q4 and 62.0% in Q1’23) .

Financial Results

MetricQ1 2023Q2 2023Q3 2023Q4 2023Q1 2024
Total interest & dividend income ($M)$42.925 $44.609 $46.601 $48.599 $50.128
Interest expense ($M)$10.324 $13.270 $15.097 $18.547 $21.756
Net interest income ($M)$32.601 $31.339 $31.504 $30.052 $28.372
Provision for credit losses ($M)$0.821 $1.125 $0.760 $2.245 $1.992
Noninterest income ($M)$11.068 $9.149 $8.125 $8.823 $8.504
Noninterest expense ($M)$27.432 $27.649 $26.622 $25.393 $27.689
Net income ($M)$12.888 $10.034 $10.387 $9.655 $6.360
Diluted EPS ($)$0.82 $0.64 $0.66 $0.62 $0.41

KPIs

KPIQ1 2023Q2 2023Q3 2023Q4 2023Q1 2024
Net interest margin (tax-equivalent)3.99% —3.69% 3.44% 3.22%
Efficiency ratio62.0% 67.9% 66.5% 64.1% 73.8%
ROAA (annualized)1.47% ———0.66%
ROAE (annualized)15.32% ———6.89%
Cost of deposits————2.14%
Total funding cost————2.54%
TCE ratio5.96% 6.00% 5.49% 6.36% 6.28%

Segment/Balance Mix

  • End-of-period loans ($000s)
CategoryDec 31, 2023Mar 31, 2024Δ $Δ %
Commercial & Agriculture304,793 302,663 (2,130)-0.7%
CRE – Owner Occupied377,322 367,419 (9,903)-2.6%
CRE – Non-Owner Occupied1,161,893 1,185,688 23,7952.0%
Residential Real Estate659,841 676,800 16,9592.6%
Real Estate Construction260,409 267,737 7,3282.8%
Lease financing receivable54,642 56,680 2,0383.7%
Consumer & Other18,056 16,244 (1,812)-10.0%
Total Loans2,861,727 2,898,139 36,4121.3%
  • End-of-period deposits ($000s)
CategoryDec 31, 2023Mar 31, 2024Δ $Δ %
Noninterest-bearing demand771,699 707,993 (63,706)-8.3%
Interest-bearing demand449,449 434,692 (14,757)-3.3%
Savings & money market863,067 929,126 66,0597.7%
Time deposits900,813 908,884 8,0710.9%
Total Deposits2,985,028 2,980,695 (4,333)-0.1%

Credit/Capital

  • ACL/Loans 1.34%, ACL/NPL 247.06%, NPA/Assets 0.41% at 3/31/24 .
  • Provision for credit losses $1.992M in Q1’24 (vs $0.821M in Q1’23; $2.245M in Q4’23) .
  • TCE ratio 6.28% (vs 6.36% at 12/31/23) .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Loan growthFY 2024Low to mid-single-digit (5%) reiterated in Q3’23/Q4’23 Mid-single-digit pace maintained for 2024 Maintained
Expense run-rateQ2–Q4 2024~$28.4–$28.7M/quarter (Q4’23 guide) ~$28.4M for rest of year; merit increases effective Apr 1 Maintained
NIM trajectory2024Stable-to-moderate contraction; difficult to model deposit migration Further modest contraction possible near term; expect stabilization/improvement into H2 as funding reprices and assets reprice Clarified
Funding mix initiatives2024Reduce brokered/wholesale funding Ohio Homebuyers Plus up to $100M at ~0.86%; move ~$75M wealth cash by Q3; brokered CD repricing ($151M repriced Mar; $200M due Nov) Expanded detail
Capital/TCE target2024+Rebuild TCE to 7–7.5% Target unchanged; balance repurchases/dividends vs capital build Maintained
Share repurchasesThrough Apr 2025~$12M remaining on prior plan (Q4’23) New $13.5M authorization approved Apr 18, 2024 Renewed
DividendOngoing$0.16/quarter (Q4’23) $0.16 declared for Q2’24 (payable May 22) Maintained
Tax rate202415–16% modeled (Q4’23) Q1 effective 11.8%; still model ~15–16% going forward Near-term lower actual; long-term unchanged

Earnings Call Themes & Trends

| Topic | Previous Mentions (Q3’23, Q4’23) | Current Period (Q1’24) | Trend |

  • AI/Technology | Digital banking platform costs rising; continuing enhancement | Software maintenance up (+35% YoY) from digital banking; continued investment | Continued investment; opex pressure
  • Funding/Deposits | Intense deposit competition; brokered use elevated; plan to reduce noncore funding | Cost of deposits 2.14% and total funding 2.54%; initiatives: Ohio Homebuyers Plus, wealth cash migration; brokered CDs repricing schedule | Near-term pressure; medium-term relief expected
  • NIM | Compression toward trough; modeling shows relative neutrality to rate cuts | NIM at 3.22%; expect stabilization with repricing; uncertainty around noninterest-bearing migration | Compressing but expected to stabilize H2
  • Noninterest income | Leasing/brand bonus/tax program boost in 2023 | -$2.6M YoY from loss of tax program and lapping $1.5M bonus; overdraft changes reduce fees; efforts to bolster mortgage gains, leasing syndication | Reset lower with rebuild initiatives
  • Credit quality | Stable metrics; monitoring office; low specific issues | Provision up on two identified credits; overall metrics stable; robust coverage | Stable overall; isolated credits addressed
  • Capital/M&A | TCE rebuild to 7–7.5%; M&A difficult in current marks | Same; M&A dialogue ongoing but environment still tough | Unchanged

Management Commentary

  • “We knew there would be headwinds as we stepped away from the third-party processor of income tax refunds… and we did not have the benefit of a $1.5 million one-time bonus… As a result… noninterest income was approximately $3.8 million less… than the previous year.”
  • “Our cost of funding increased by 35 basis points to 2.54%, while our yield on earning assets increased by 12 basis points to 5.64%. This resulted in our margin contracting by 22 basis points… to 3.22%.”
  • “The state of Ohio [Homebuyers Plus] will deposit up to $100 million in low-cost funds at… 86 basis points… We anticipate… move $75 million [wealth-management cash]… into the bank by the end of the third quarter.”
  • “We experienced an increase in our allowance for credit losses… primarily attributable to a hospitality credit and a cellular tower credit… necessary to adjust collateral values and to increase our reserve.”
  • “Our previous guidance remains that we would like to rebuild our TCE ratio back to between 7% and 7.5%… balance any repurchases and the payment of dividends with building capital.”

Q&A Highlights

  • CFO appointment: formalizing CFO role ahead of current controller’s future retirement to ensure knowledge transfer and leadership continuity .
  • Expenses: reaffirmed ~$28.4M quarterly run rate for the rest of 2024; April 1 merit increases are main incremental item .
  • NIM outlook: continued upward pressure from deposit migration; early positives from repricing brokered deposits; CD specials rolling down; stabilization expected as assets reprice more in H2’24 .
  • Brokered CDs: ~$500M outstanding; $151M repriced on Mar 20; ~$200M matures in November; remainder in 2025 .
  • Loan growth and pipelines: reaffirm mid-single-digit growth; multifamily demand in Ohio metros remains strong; tight pricing discipline .
  • Tax program deposits: ~$31M remained at March-end; anticipated full runoff in Q2; expect ~$20M quarterly runoff to be fair modeling assumption .
  • Tax rate: 11.8% in Q1; model ~15–16% going forward .

Estimates Context

  • S&P Global consensus estimates for revenue/EPS were unavailable at time of retrieval due to a data access limit; therefore, beat/miss comparisons versus Wall Street consensus are not provided. Actual results cited are from company disclosures .
  • Where estimate comparisons are critical for your process, we can refresh once S&P Global data access resumes.

Key Takeaways for Investors

  • Margin pressure persists near term as deposit mix shifts; management has tangible levers (Ohio Homebuyers Plus at ~0.86%, wealth cash migration) and brokered CD repricing that should ease funding costs into H2’24, supporting NIM stabilization .
  • Noninterest income reset is structural (tax program exit; overdraft changes); incremental offset expected from mortgage gain-on-sale, leasing syndication, and fees—trajectory should improve seasonally in Q2–Q3 but won’t fully replace prior-year one-offs .
  • Expense discipline is credible with a clear run-rate framework (~$28.4–$28.7M/quarter) despite digital banking investment; monitor for execution vs. guidance .
  • Credit remains contained with specific reserves elevated for two identified credits; coverage robust (ACL/NPL 247%) and NPA/Assets low (0.41%), mitigating downside risk if macro softens .
  • Capital priorities emphasize TCE rebuild to 7–7.5%; buybacks opportunistic under renewed $13.5M plan but likely subordinate to capital build in 2024; dividend intact at $0.16 .
  • Medium-term: mid-single-digit loan growth achievable given strong multifamily/constructive pipelines, but growth pace gated by funding; pricing discipline should protect spreads .
  • Trading lens: near-term prints may remain noisy on NIM/fees; catalysts include visible funding-cost relief from Ohio program/wealth deposits and clearer fee stabilization by late Q2/Q3 .

Additional Relevant Press Releases (Q1/Q2 2024 timing)

  • CFO appointment: Ian Whinnem named CFO, effective June 3, 2024 .
  • Share repurchase program: new $13.5M authorization approved April 18, 2024 .
  • Dividend: $0.16 per share declared for Q2 2024 (record May 7; payable May 22) .

Source Citations

  • Q1 2024 8-K/Press Release details: net income/EPS, NIM, average balance analysis, noninterest income/expense, efficiency ratio, balance sheet/credit metrics .
  • Q1 2024 Earnings Call Transcript: management commentary on funding initiatives, NIM outlook, brokered maturities, expenses, loan growth, credit specifics .
  • Prior quarters context: Q4 2023 and Q3 2023 call metrics for NIM, efficiency ratio, guidance baselines, capital/M&A commentary .